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Tuesday, 30 June 2015

Money has such a pivotal role. Almost no one can be
indifferent to it. However, very few, a miniscule minority really understand it
and can take balanced decisions about it. While it is a rational subject,
emotions drive decision making.

A person in his forties, earning Rs. 5mn pa, but is
absolutely unhappy with his job, is asked, “How much more money do you want to
earn, before you feel secure enough to retire?” He says, “I would like to quit,
but I can’t arrive at a figure, the more, the better.”

Now, this can be interpreted in two ways. One, that his
cribs about his jobs are nothing more than an engaggement in self-pity. He
needs someone to agree with him that he’s going through troubles and that
factors outside are responsible for his misery. The second interpretation is
that he truly wants to free himself out of his misery, but is not feeling
financially secure to quit his job. Which of the interpretations is correct can
be easily gauged by asking simple questions like, “If you do a thorough
examination of your finances and you realise that you have more than enough for
all your financial needs, will you quit immediately?” Or one may say, “I know
of someone, who is very good at answering this question of financial security.
He has done it for himself and has also helped many more feel secure. We can
meet him tomorrow. Should I fix a time?” It is then easy to ascertain which of
the interpretation is correct.

During the last few months, I’d been unsure about our
financial security. I know that this is a rational subject and the logical
answer can be found by simply arithmatic calculations. The financial objectives
are as under

There is no need to build a networth to be
inherited by children.

All needs including those beyond physical
sustenence, should be considered for fulfillment. On cross examination, if it
is found that for fulfilling a particular need, the time and effort required to
earn the requisite money is not worthwhile, the need may be dropped.

The question to be answered was whether I had enough to
achieve my financial objectives. Since there is no need to leave inheritance,
it is alright to deplete principal amount. The results of my calculations
revealed that if I have a networth of Rs. 10 mn, I manage this money to
generate returns of 12% pa, I withdraw 30k per month for the first year and
then increase the monthly withdrawal by 10% every year (to account for
inflation), then, I will be able to satisfy my financial requirements till 2060
and still have assets worth Rs. 15mn. 30k is a little more than what we
currently spend on an average per month. In 2060, I will be over 80 years,
probably dead. It should also be considered that during the coming years and
decades, I will make efforts to earn.

Does that make me feel financially secure? Yes, it does. But
I’m not sure if this kind of understanding will help other people. There are
many I know, who have so much that they will not be able to spend in this
lifetime, but are still unsecure. There’s something else that helps in getting
that sense of security.

Anyone wanting to explore their own financial standing,
welcome to drop me a line.